The Accounting Records of 10Com Ltd

question 3

Essay

The accounting records of 10Com Ltd.show the following for 2018:

*The credit side of the journal entry (or entries)related to this amount went to allowance for doubtful accounts.
** Account write-offs were debited to the allowance for doubtful accounts.
More Info
For 2018,cash sales were $970,000,while credit sales were $720,000.Recently,10Com's management has become concerned about various estimates used in its accounting system,including those relating to receivables and uncollectable accounts.The company is considering two alternatives.
For the purpose of comparing these two alternatives,the company has made the following estimates for each alternative.
• Alternative 1: Bad debts approximating 0.7% of credit sales.
• Alternative 2: Aging of the accounts receivable at the end of the period,where 80% would incur a 2% loss,while the remaining 20% would incur a 9% loss.
Required:
For each of the two alternatives listed above,calculate the bad debts expense for 2018 and the allowance for doubtful accounts balance at the end of 2018.

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Definitions:

Snowmelt

The runoff produced by melting snow.

Hundred-year Flood

is a term used to describe a flood event that has a 1% chance of occurring in any given year, used as a standard metric in flood risk assessment.

Probability

The statistical description of the likelihood that an event will occur.

Floodplain

A flat area of land adjacent to a river or stream that experiences occasional or regular flooding.